I have several questions

My answer to the first question is that it seemed to me that more active the demon became, the more damaged the doll looked. It looked ok after the fire but then I noticed when the demon was holding it in the living room and then the priest had it in his car, its eyes looked bloodshot, the skin was gray and stressed.






Make him do it again - Ilithyia
The voice says I'm almost out of minutes - Cas

1) The doll is possessed - by either the spirit of the cult daughter that died while holding her (blood drips in Annabelle's eyes), the demon that was summoned by the cult, or another evil energy related to both forces. Since evil is contained inside the doll, it manifests in the container that is Annabelle. She progressively decays and looks ugly to reflect the ugliness insider her.

2) They weren't real children. They were either manifestations brought forth from the demon, other demons, the souls of the two cult people that died in the beginning, or an illusion/hallucination brought on by the demon.

3) Drawn by the demon. Not the doll, because it's made very clear that Annabelle can't move on her own. She is moved by evil forces. At least that is what we have been shown up until this point. I don't think she drew anything in The Conjuring either. Maybe Annabelle 2 will have her doing different things or provide a different answer.

4) Plot convenience. A reasonable person with a new baby would not change her mind about keeping a doll that had been thrown in the trash. But the writers really wanted to have the audience suspend their disbelief so Annabelle could stick around. But if a real reason is needed, then it might be because Mia was suffering PTSD and stress after the new baby, and wasn't thinking clearly. She also seemed more confident after they met with the priest. Maybe his words made her feel less fearful, and she wanted some control back in her life?

5) I know, this was badly edited. My only guess here is that Mia (and the audience) were shown things that weren't true. So, maybe she was holding the baby the entire time. She did see the ghost and the doll in the glass reflection right before the carriage was hit. Anytime there was ghostly/demonic activity, reality became distorted. The real reason is that the filmmakers wanted to "psych out" the audience, and this helped add to the effect.

6) Either the inside of the church was protected and expelled evil energy (and the priest was caught in the middle) or the demon pulled him and Annabelle back before they could enter. The way it was shot makes me believe it was not the demon, and that the church's protective barrier is what did that. They don't make it clear.

7) The movie reason: when demonic energy and the supernatural are involved, people's judgment is clouded. The real reason: because Annabelle equals $$$$$$ for Hollywood.

It was just an incredibly rushed, poorly written, uncreative, convoluted film no other explanation is needed

The answer to all your questions is that it's a badly-written movie with no clear ideas behind it. The writer just had stuff happen he thought would be creepy. There's no logic in it.